Liechtenstein has long been known as a tax haven. The tax rates for income tax and corporate income tax are significantly lower than in Germany. However, if you prefer to live in Germany and take advantage of tax advantages in Liechtenstein, other options are available. Liechtenstein offered the best ways to save taxes with IP Box. This involves the application of royalties for trademark rights, patents and other intangible assets paid by a German company to a licensing company in Liechtenstein. In Liechtenstein, these revenues accounted for just 2.5% of taxes, while these royalties for the German company reduced profits as an expense and thus saved taxes. However, Liechtenstein has now abolished this privilege. For this, foundations in Liechtenstein are still an attractive model with which you can continue to save taxes.

What do Liechtenstein, Luxembourg and Monaco have in common? Usually, one expects answers to such a quiz question that allude to their geographical location in Central Europe or highlight their small area. In addition, the three countries are independent noble families and are already a special feature in this way. However, it is the third element that should be mentioned in the first place in our blog posts, namely the fact that these countries are considered tax havens.

Therefore, we now want to investigate whether Liechtenstein actually still deserves the title tax haven, and how tax savings can be made there. Finally, at least with regard to IP-Box in Luxembourg, there have been legal changes recently. Does this also apply to Liechtenstein?

2. Taxes in Liechtenstein: natural persons

The structure of our article on taxes in Liechtenstein is directed from the general to the special case. For this reason, we start with the taxes in Liechtenstein that natural persons have to pay.

2.1. State tax in Liechtenstein: Property tax and acquisition tax

So what corresponds to income tax in Germany is called occupation tax in Liechtenstein. However, there is also a property tax. Another difference to Germany is that on the one hand, a further division into a state tax and a municipal tax based on it is carried out. The state tax is divided into eight stages, with the highest tax rate from a sum of CHF 200,000 from assets and acquisition being 8%. Similar to Germany, spouses in Liechtenstein can exercise the option of joint investment. However, the tax treatment of single parents is different. Although the same tax rates apply, the gradations of the assets are higher for these persons than for single persons.

In the case of wealth tax, the entire assets of a taxpayer are considered in principle – both domestically and abroad. However, Liechtenstein maintains bilateral double taxation agreements with a number of countries that restrict this world income principle. Such an agreement exists with Germany, but also with the two neighbouring countries of Liechtenstein, Austria and Switzerland. A further restriction is a certain amount of allowance on the property. On the one hand, everyday items are tax-free. This also applies to motor vehicles. However, there is an upper limit of CHF 25,000 per person or CHF 50,000 for spouses. Business premises and real estate abroad as well as agricultural products are also exempt from property tax. Furthermore, it is important that debts reduce taxable assets.

By the way, according to the law in Liechtenstein, both Prince and Hereditary Prince enjoy tax exemption.

2.2. Municipal tax in Liechtenstein

Municipal taxes then apply again to the state tax. Each of the eleven municipalities sets the tax rate each year. This then amounts to between 150 % and 250 % of the national tax.

So you can quickly calculate that the maximum tax burden of natural persons who are subject to unlimited tax in Liechtenstein is 20%. In comparison, the top tax rate in Germany is more than twice as high at 45%.

First of all, we would like to point out a peculiarity in the use of the terms income tax and income tax. The former is a term related to German tax laws and includes a set of taxes that apply to income. The second term, which is written with an additional “s”, however, represents the Liechtenstein counterpart to the German corporate tax.

Legal persons are taxable in Liechtenstein if their registered office is in Liechtenstein or their administration takes place from there. In addition, there is a flat-rate minimum income tax of CHF 1,800 per year. This is then counted against the actual income tax. In general, a tax rate of 12,5 % applicable to the net income of a corporation applies.

Comparatively, Germany is subject to 15% corporate tax. However, the taxation of corporations also includes business taxes. Since the respective municipality collects the trade tax and can determine the levy as far as possible, the actual tax rate for the trade tax depends on the location and is therefore variable. Therefore, in our comparison, we simply assume an average value of a further 15% in trade tax. This results in a realistic tax of about 30%, which a German company pays, for example, in the legal form of a GmbH in this country.

4th IP Box in Liechtenstein

Until some time ago, Liechtenstein had a special tax privilege over companies whose source of income was royalties on patents, trademark rights and other intangible assets. These companies are called IP Box in jargon. IP Boxes are a characteristic of many tax havens worldwide. With these structures, for example, as a German entrepreneur you could set up an IP box in Liechtenstein, transfer the intangible assets there, and then pay this foreign company license fees, which you booked in Germany as an expense. In this way, part of the profit generated in Germany could be transferred to a more tax-deferred foreign country.

Within the framework of the OECD, this tax practice has been strongly discussed internationally, because it clearly lacked significant tax revenues in many industrial nations, such as Germany. Therefore, in many countries that previously privileged IP Box, the tax laws have been adapted accordingly. In Luxembourg, for example, the framework conditions have been narrowed down in such a way that preferential taxation of IP boxes is only carried out under certain conditions.

Measures have also been taken in Liechtenstein to withdraw IP Box from the tax privileges previously granted. Previously, the tax rate for IP Box in Liechtenstein was only 2.5%. These revenues are now subject to income tax on a regular basis. Thus, the big tax advantage of an IP box in Liechtenstein has disappeared. Unlike in Luxembourg, for example, Liechtenstein has not created a replacement structure for IP Box.

Finding the right tax haven: Panama, Cyprus, Dubai, Paraguay, Georgia or USA?

Foundations in Liechtenstein – discreet and tax-advantageous

However, there is still another way to save taxes in Liechtenstein. Because in Liechtenstein, foundation law is very advantageous from a tax point of view. In doing so, the foundation can be designed in such a way that the requirements governing the additional taxation in the German foreign tax law can be nullified. The reason for this is that foundations in Liechtenstein can avoid appointing a beneficial owner at the foundation, so that § 15 AStG does not apply any basis. This avoids taxation in Germany.

Basically, only the trustee and the attorney involved need to have knowledge of the purpose of a foundation in Liechtenstein and the identity of the founder. Furthermore, when establishing a foundation in Liechtenstein, no gift tax or inheritance tax is payable in Liechtenstein from abroad. With foundation assets of CHF 30,000 or more, a foundation is often founded within a few days. In addition, a foundation in Liechtenstein also eliminates the legal obligation to substitute inheritance tax, as it applies in Germany every 30 years.